Chinese Companies Taking Similar Business Approaches as Their Global Peers on the Journey to High Performance and Global Competitiveness, Accenture Research Finds

Research reveals need for Chinese companies to focus on sustainable, profitable growth to achieve high performance and close the gap with the best global companies

BEIJING; Aug. 27, 2007 – The most successfulChinese companies blend global best practices with unique Chinese practices to outperform their local competitors, be globally competitive and achieve higher levels of performance, according to findings from the initial phase of Accenture’s High Performance Business research in China.

The ‘High Performance Business in China 2007’ research marks the first time that Accenture has applied its proprietary High Performance Business methodology to a single country market. Begun in 2003, Accenture’s High Performance Business research initiative entails in-depth analyses of more than 6,000 companies globally. Through the research, Accenture has identified more than 500 “high performers” — companies that successfully balance current needs with future opportunities; consistently outperform their peers in revenue growth, profitability and total returns to shareholders; and sustain their superiority across time, business cycles, industry disruptions and changes in leadership.

The China research, begun late last year, covers nearly 200 publicly traded companies incorporated in mainland China across 13 industries. Based on detailed financial analyses and surveys with a number of Chinese executives, the research examines characteristics and traits of more than 25 Chinese high performers.

The research revealed that the success of Chinese high performers is built upon a blend of global best practices and unique Chinese approaches within Accenture’s three building blocks of high performance: market focus and position (knowing where and when to compete); distinctive capabilities (a company’s differentiated approach to the way it builds and leverages its capabilities); and performance anatomy (the underlying cultural characteristics and mindsets that enable a company to out-execute its competitors regardless of what strategies the company chooses).

“Achieving and sustaining high performance has never been more important for Chinese enterprises,” said Gong Li, Accenture’s chairman for Greater China. “They are growing at a tremendous rate and are at a turning point -- facing the new competitive landscape of what we call a ‘multi-polar world,’ with new economic hubs and poles of economic power, which offer unprecedented opportunity and challenges. Facing the rise of the multi-polar world, diminishing local advantages, more competitive domestic markets and results-oriented shareholders, Chinese companies must proactively pursue profitability and sustainable growth.”

Accenture found that the Chinese high performers share several characteristics. Specifically, they:

·Focus on shareholder value creation and consider shareholder returns their top priority when forming strategy. Compared with their domestic competitors, Chinese high performers have a more holistic strategy that simultaneously balances revenue growth, profit growth and shareholder value creation. They are also beginning to adopt international best practices in the area of transparency and corporate governance, especially as they seek to attract strategic investors, undertake foreign listings and expand overseas.

·Simultaneously manage multiple horizons. Chinese high performers have long-, mid- and near-term strategic planning processes that are constantly evolving with market needs and are carefully focused on identifying where their revenues will be coming from next. They anticipate market moves and demographic trends and create what their customers will want in the future, not just what their customers want now.

·Align capital deployment with customer-centric business models. The best Chinese companies dedicate the necessary financial resources to each component process to ensure its success and take steps to ensure that their distinctive capabilities and competitive advantages further differentiate them from their competitors. For instance, they make investments in customer satisfaction and loyalty to create distinctive levels of service that match those of their global peers.

·Understand the importance of human capital. Chinese high performers make significant investments to hire and retain the best people, leveraging their understanding of local employees’ needs to make sure they retain them and tap their collective knowledge and skills.

·Use technology as a strategic asset and an enabler of innovation, new value creation, operational excellence and competitive advantage. Many Chinese high performers are carefully examining the linkages between IT investments and business results. Not being held back by IT legacy, Chinese enterprises are positioned to leapfrog several generations of IT hardware and applications, adding further momentum to their transformation.

The findings revealed that Chinese high performers have some characteristics unique to Chinese companies, including: taking a networked approach to their market focus and position by leveraging relationships with governments, industry associations, international companies and even competitors to rapidly embed themselves into the fabric of the local markets where they want to compete; quickly changing business models to suit new markets and to adapt accordingly when interrupted by external factors such as regulatory change or imitation by competitors; and creating a unique blend of Chinese and Western management styles by adopting international best practices while retaining the best aspects of their Chinese culture and heritage as they expand locally and overseas.

The research also makes direct comparisons between Chinese and global peer sets’ performance between 2001 and 2005. Despite having faster revenue growth, Chinese high performers still lag behind other high performers in terms of creating profitable growth — i.e., their return on invested capital over and above their average weighted cost of capital, the difference of which is referred to as the “spread.” While China’s best companies achieved an average spread of 2 percent during the period analyzed, that was only half the 4 percent average spread that the best global companies achieved. Meanwhile, the average spread achieved by all Chinese companies was negative 5 percent, compared with an average spread of positive 2 percent for the global companies.

The research also suggests that Chinese companies face a series of challenges in their quest to expand globally, not least their relative lack of international experience. But the ‘time-compressed’ nature of their development, compared with their Western, Japanese and Korean counterparts, is equipping them with some unique abilities centered on speed and agility - such as rapidly changing their business models - to adapt to market conditions. While Chinese companies cannot expect global markets to fall before them, they will be able to use these advantages to win in other markets, especially in other emerging economies with similar levels of volatility to those they have navigated successfully at home.

“To succeed, Chinese business leaders will need to focus on the quality of growth in revenues and profits before they can go head-to-head over the long term with the world’s best companies,” Mr. Li added. “Successful Chinese companies are also the driving forces in generating productive economic activity and innovation. Our High Performance Business China research offers detailed and pragmatic guidance centered on Accenture’s three building blocks of high performance and should help Chinese executives understand what it takes to become and to remain a high-performance business.”

The research is available at www.accenture.com and www.accenture.com.cn

Methodology

Accenture’s High Performance Business methodology involves assessing companies’ five core areas of performance by analyzing 13 financial metrics from publicly available sources. Each metric is gauged for statistically significant outperformance of its industry peers. The five core areas are: (1) Growth, measured by revenue expansion; (2) Profitability, measured by the spread between the return on invested capital and the cost of capital; (3) Positioning for the future, measured by the portion of share price that cannot be explained by current earnings (what Accenture calls “future value”) and by the portion of the industry total that each company’s future value represents; (4) Longevity, measured by the duration of out-performance in total returns to shareholders, a performance area important to Accenture’s requirement of sustained value creation over time; and (5) Consistency, measured by the percentage of time that a company’s performance has been greater than median performance in terms of profitability, growth and positioning for the future.

The China report is based on quantitative and qualitative phases of research. In the quantitative phase, Accenture’s proprietary method of performance evaluation was applied to the China market to identify the high performers. For a company to be included, its annual revenues had to exceed RMB 1 billion, based on publicly available data, and it had to be listed on either a local or overseas stock exchange for at least five years, with at least 50 percent of the company’s annual sales generated in China. For an industry group to be included in the research, it had to include listed companies that together represent at least half of the industry’s market value. For an industry to be included in the Chinese research, global (i.e., non-Chinese) peers in that industry had to be identified to ensure direct comparisons between the Chinese and non-Chinese companies. The qualitative research involved a series of surveys conducted with 75 senior executives as well as a number of interviews with board level executives from Chinese high performers

Accenture is a global management consulting, technology services and outsourcing company. Committed to delivering innovation, Accenture collaborates with its clients to help them become high-performance businesses and governments. With deep industry and business process expertise, broad global resources and a proven track record, Accenture can mobilize the right people, skills and technologies to help clients improve their performance. With more than 158,000 people in 49 countries, the company generated net revenues of US$16.65 billion for the fiscal year ended Aug. 31, 2006. Its home page is www.accenture.com.

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